Your Tax Filing Options and the Cost to File Taxes
Not sure how to file your taxes this year? You’re not alone! When you have self-employment income, it can be tricky to decide how to file. So, which option should you choose and how much does it cost to file taxes?
There are four main tax filing methods available to you. From shelling out for an accountant to filing alone with software, each of these options has their own pros, cons, and unique costs. Here’s all the important information you need to know to evaluate your options, select the best filing method, and understand the cost to file taxes.
1. The expert method: Accountants or tax return preparers
The details:
The basics: You hire a tax preparer who files for you
Price: Between $200 to 500 (on average)
Time you’ll spend: Usually less than two hours
Quality: Great
Good option for: Any situation, but best for complicated tax returns or people who are nervous about filing their own taxes
If you had any of these situations in the previous tax year, you should consider hiring an accountant or tax preparer:
Had multiple types of income
Owned a home
Had high medical costs
Experienced a major life change, like moving to a new state or having a baby
Managed an inventory for your independent work
Had any tax filing situation that required extensive bookkeeping throughout the year
These tax filing situations usually mean you’ll need to file a few extra forms along with your typical Form 1040, making your tax return a bit more complicated.
If you know you have a complicated tax return and are willing to spend a little extra, then it’s probably worth it to pay for a tax preparer. You’ll get some peace of mind knowing that a professional is helping you out, not to mention some extra time back that you would’ve spent filing your taxes on your own.
The major upside of hiring a tax return preparer is that it requires minimal effort on your part. You’ll pass your information and documentation to your accountant and let them do the work. With that said, the cost of filing taxes with an accountant is a little higher, but it can save you a massive headache.
Insider tip: Tax preparers become less available toward the end of tax season because so many people wait until late March or April to file their taxes. Be sure to make your appointment early.
2. The online method: Tax-filing software
The details:
The basics: You purchase software that guides you through filing
Price: Anywhere from $0 to $100+
Time you’ll spend: One to four hours, depending on how many supplemental forms are required
Quality: Great
Good option for: Easy or moderately complex returns, or people who like managing their own finances
Even if you’ve never filed your taxes on your own before, tax-filing software can almost always walk you through your tax return in a way that makes the entire process much easier than you’d think. All you’ll have to do is answer a series of “interview” questions about your tax filing situation.
If you can answer questions like these, then you’re probably well-equipped to handle tax filing on your own:
How much money did you get from 1099 work this year?
How much did you have in vehicle expenses for your business?
Are you married, and if so, are you filing jointly?
Do you want to claim dependents, and what are their Social Security numbers?
Software can also give you recommendations based on the information that you provide. For example, you won’t have to decide for yourself if you should take the standard deduction or itemize your deductions. The tax filing software will look at the tax information you’ve entered and decide for you.
There are a few major pros of using tax-filing software:
You have tons of options to choose from
You can work on filing whenever you have time and save your work as you go
If you ever get stuck, most filing software has an online tax center or a dedicated support team to answer your questions.
However, keep in mind that you still have to do much of the work on your own.
3. The old-school method: Paper filing
The details:
The basics: You file by filling out paper forms
Price: Free
Time you’ll spend: Four to six hours, depending on how familiar you are with filing taxes without assistance and how complicated your tax situation is
Quality: Good
Good option for: Very simple tax situations or expert tax filers
Filing your taxes by hand can be quite complicated, especially when you are self-employed. If you’re considering preparing a paper return but aren’t a tax code nerd, make sure you have a super simple tax situation on your hands. If you answer “yes” to the questions below, you might be in a good position to file your taxes by hand.
Do you only have one 1099 job?
Do you have very few deductions?
Do you have no dependents?
Do you qualify for very few tax credits?
Did you not experience any major life changes (from a tax perspective) in the previous tax year?
Insider tip: If you’re only filing by hand to save money, be sure to check if you qualify for a free tax-filing program.
4. Free tax-filing programs
The details:
The basics: You receive free assistance with filing your taxes (your income must qualify you)
Price: $0
Time you’ll spend: One to three hours
Quality: Good
Good option for: Those with income less than $79,000 per year, those with disabilities, and those who speak limited English
There are a number of free tax preparation nonprofits that will help you at no charge, depending on your income.
For example, the IRS’s VITA program can help you find free tax preparation in your area. Search for a tax prep location in your ZIP code.
If you need assistance with paying your tax bill or resolving any tax disputes with the IRS, you can also get free or low-cost assistance via the Taxpayer Advocate Service.
Your cheat sheet
That was a lot of information, and you’re probably wondering what option is best for your filing situation and how much it costs to do your taxes.
Check out our cheat sheet below to weigh tax-filing costs and all the other details you need to make a smart decision.
